Global base oils arb outlook: Week of 18 August

·         US Group II base oils export prices weaken versus FOB Asia Group II prices in Q3 2025.

·         Prices weaken at time of year when FOB Asia Group II prices typically fall versus US prices.

·         Asia prices typically fall to help to avoid or to clear surplus volumes at time of year when regional demand faces seasonal slowdown.

·         Weaker US Group II export prices versus FOB Asia prices this year complicates any such moves to clear surplus volumes from Asia.

·         Weaker US Group II export prices vs FOB Asia prices by contrast facilitate moves to clear surplus volumes from US.

·         Dynamic suggests US market faces more pressure than Asia market to clear surplus volumes.

·         Any rise in US surplus supplies is relatively recent.

·         US base oils/lube stocks fall to forty-six-month low in May 2025, pointing to tighter-than-usual supply.

·         US base oils/lube exports then fall in June 2025 amid signs of weaker demand from term buyers in domestic and export markets.

·         Lower exports in June 2025 follow completion of most plant-maintenance in May 2025, raising prospect of rise in domestic output.

·         Lower exports, lower term demand and higher output coincide with rebound in base oils imports in June 2025.

·         Dynamic raises prospect of pick-up in US' surplus supply.

·         Like US, Asia’s net base oils supply also stays tighter than usual in first five months of 2025.

·         Asia’s tighter supply then extends into June 2025.

·         Dynamic raises prospect of blenders starting Q3 2025 with lower-than-usual stocks.

·         Firm demand in markets like India then extends through July 2025.

·         Dynamic raises prospect of blenders tapping already-low stocks, and of stronger pick-up in requirements for replenishment volumes later in Q3 2025.

·         Prices of imported base oils cargoes into markets like India and UAE maintain firm premium to FOB Asia prices during Q3 2025.

·         High price-premium points to firm buying interest, sustains incentive for Asia refiners to target those markets.

·         Firm supply-demand fundamentals leave Asia’s refiners facing fewer surplus volumes to clear.

·         Weaker supply-demand fundamentals in US leave that market facing more surplus volumes to clear.

·         Asia's Group II base oils price-strength relative to US prices so far in Q3 2025 reflects those dynamics.